It’s already been a tough year for US tech companies, and for an estimated 95,000 workers who have been laid off in the past month and a half. A job boom associated with low interest rates, increased online shopping, and generous advertising spending faltered as the pandemic eased, advertisers retreated, and the Fed raised interest rates.
Sometimes Wall Street applauds these kinds of cost-cutting measures, and sometimes stocks fall. What’s more clear is that layoffs do more harm than good in the long run.
“Layoffs are built into the business as a short-term solution to cut costs, so managers ignore the fact that layoffs create more problems than they solve.” Harvard business review reported in 2018. HBR compiles a mountain of evidence to support its hypothesis, detailing the damage layoffs do to long-term productivity, employee morale, and corporate profits, and the economic safety and physical health of workers. It presented alarming statistics on impact.
HBR pointed to a study of employees who lost their jobs during the 1982 recession. Twenty years after being laid off, these workers were shown to earn 20% less than their peers who remained in their jobs. Another study found that “an employee who was laid off was 83% more likely to develop a new health condition in the year following his dismissal, and he was six times more likely to commit violent acts.”
Of course, some companies handle layoffs much more gracefully than others. should do it reflected in ESG scores.
Apple avoids layoffs. In the publishing business, this kind of positive press is called “earned media” and is usually more effective at building brand loyalty than paid media (advertising).
Meanwhile, some tech companies have demonstrated how downsizing creates reputational risk.
Online mortgage company better dot com: The company handled layoffs so coldly last year (via email) that the company’s CEO was suspended and several executives were fired, according to the company. TechCrunch.
Last November, twitter reportedly locked some employees out of their email accounts before sending out unsigned memos announcing massive layoffs and office closures and informing them they would be laid off. No performance bonus was paid and the employee had to sign a non-disclosure agreement to receive one month of her salary as a retirement benefit.
Amazon announced that it will lay off 18,000 employees in January. The company did not disclose details of the severance package, but reportedly offered employees one week’s wages and three months of health insurance for every six months of tenure in exchange for leaving the company. That’s about nine months for a 20-year Amazon veteran.
Other tech giants seem to be a little more cautious about layoffs. Google and Facebook announced a severance package of 2 weeks for each year at the company, in addition to 16 weeks of salary. In other words, a person who has worked for 20 years will receive approximately one year’s salary. The companies have committed to paying a 2022 bonus, compensating the employee for the rest of his PTO and vacation time, and extending medical coverage for six months.
These retirement packages offered by Google and Facebook may seem generous by American standards. But it’s worth noting that the European Union and other major countries around the world have much stricter worker protection policies in place (Twitter finds this out the hard way). Employers must justify layoffs or find alternative cost-saving measures.
These policies recognize a fundamental truth that seems to escape the heads of American industry. It is unethical to punish workers for economic factors beyond their control. “Employees have lost faith in a just world where good work naturally makes them safe,” it wrote. first company in December. “That’s what makes layoffs traumatic.”
Don’t let layoffs become the norm. These should be a last resort, not a standard operating procedure.
